Are you a content creator who’s great at the creating part of your business but still haven’t gotten a hang of the accounting part? Well, in this creator’s guide to expensing, you’ll learn the basics of expensing and how to do it easily.
Knowing the basics of expensing will help you keep your creating business organized and running smoothly so you can concentrate on the thing you do best– creating!
In this post, you’ll learn about what expenses are, why you should keep track of them and an easy way to do so.
Disclaimer: This post does not contain financial advice and is purely for entertainment purposes. Reach out to your local CPA for specific tax information for your business.
What are expenses?
Basically, expenses include the money you spend on products and services you need for your business to make money.
But for a more official definition, according to the Internal Revenue Services (IRS), expenses are ordinary and necessary costs incurred to run your business. “An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business” (IRS P535).
For creators and freelancers alike, this could include things like:
- Website hosting
- Home office space
- Airplane tickets
- Camera gear
Each creator and freelancer would have different expenses that qualify as ordinary and necessary depending on their industry so always reach out to your local CPA for specific questions to your business.
Why do you need to keep track of expenses?
The best reason to keep track of your expenses is to save money on taxes!
Expenses, also known as tax deductions or tax write-offs, reduce the amount of taxes you have to pay on the money you make. They are subtracted from your revenue, which gives you a net profit or taxable income.
Lucky for creators and freelancers, this means you should never have to pay taxes on all the money you make; only the money you have left over after qualified business expenses.
The more expenses you can deduct or write-off for your business, the lower your taxable income will be, which results in paying the least amount of taxes as possible to the IRS.
Not only is reporting accurate revenue and expenses to the IRS required by tax law, it is also helpful to see what money is being spent on your business. You can analyze your year-end spending and decide which expenses are necessary for your business or are unessential and can be cut to save money.
Do I need to save receipts supporting the expenses?
Yes, it’s always a good idea to save your receipts supporting the expenses you tracked as proof of the money spent. In case you are ever audited, you can go back to your receipts and show them to the IRS.
To do this, it’s best to store your receipts digitally online on a cloud for safekeeping. Think Dropbox, Amazon Drive or iCloud.
You can either take photos of your receipts or use an app like Adobe Acrobat to convert receipts into PDFs and upload them directly into the cloud.
The general rule of thumb is to save them for 3 years because this is the time period in which you can 1) amend your tax return or 2) the IRS can audit your taxes. There are exceptions to this 3 year rule, which you can find on the IRS’ website.
About the Author
Hey fellow creators! I’m Sarah Chetrit. I used to be a Certified Public Accountant* and now have been a content creator for six years. I started as a travel blogger and now teach bloggers and content creators how to make money with their content creating business. Find me at SarahChetrit.com or on TikTok, @sarah.chetrit
* I am an inactive and unregistered CPA. This post is purely for entertainment purposes and does not contain financial advice.